What Will Yahoo’s Acquisition of Tumblr Actually Mean?

Today Yahoo announced that the company intends to acquire microblogging platform Tumblr for $1.1 billion. This is an important event for the two companies, their users, marketers and the New York startup ecosystem. Here are some of the good things that will likely happen from this:

Success. New York City has not had a fully realized, billion-dollar-plus exit for a consumer-based tech startup since, well, ever. It will be great to name a company other than DoubleClick when discussing large, billion-dollar outcomes for New York companies.

Resources. Whether in operations, technology or sales, Yahoo will give Tumblr the ability to instantly scale its business to a much greater degree.

New investors. A great benefit of an exit at the scale of Tumblr ‘s is what this will do for the local ecosystem. There will be many shareholders who will direct their capital gains toward creating more startups.

Technology. A Yahoo/Tumblr merger will put even more engineers in New York, further establishing the city as center for software technology excellence. Google and Facebook already have a growing presence in New York.

On the flipside, there are some real and potential drawbacks when Yahoo acquires Tumblr. They include:

No IPO. When Tumblr is acquired by Yahoo it will then obviously not be going public, eliminating another potential New York-based tech-startup IPO candidate. Perhaps Tumblr wasn’t ready, or the management simply didn’t want to deal with the hassle of going public. But New York’s technology movement won’t be truly mature until we have at least a few successful IPOs.

User revolt. Some Tumblr users are already complaining about the acquisition by Yahoo. How bad could this get — and what would happen to site traffic as a result?

Marketer revolt. How do you make mainstream marketers comfortable being associated with a brand that also hosts pornography? And if you change your terms of service, what happens to the fun free-for-all that is Tumblr?

History. “Imagine a company backed by Fred Wilson, one of the top venture capitalists on the Internet. The company is largely reliant on user-generated content and has had difficulties generating revenue in line with its stratospheric valuation. All of a sudden, Yahoo appears and offers a billion-dollar-plus valuation to acquire the company.” That was Forbes talking about GeoCities, the Web hosting service that Yahoo acquired in 1999 for more than $3.5 billion and then shut down a decade later. The author could have just as easily been describing Tumblr.

At work here is not only the mechanics of a large technology acquisition, but also the increasingly complex interplay among corporations, users and marketers.